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2 Sustainable development

Schneider Electric’s commitment to environmental performance

Circular economy

3.4

Overview The circular economy concept has gained further momentum in 2017. There is a growing awareness that most industry sector models are too linear (“take, make, dispose”) and not circular enough ( i.e. with a strong focus on repairing, servicing, retrofitting, reusing, and recycling). The circular economy encompasses many of the activities Schneider Electric has already been doing for years, like servicing, repairing and recycling equipment. Of course, a 360° look at how “circular” we are allows us to view our processes and customer relationships through a new lens, thus identifying new avenues for innovation and growth. Description of risks and opportunities The risks we see are mainly around the perception of ‘one size fits all’ for circularity, and related to this, the focus on developing the related guidelines/governance and standards based on this perception. E Product durability versus shorter-term waste loops: we believe the biggest impact of the circular economy will come from evolving business models and from extended product lifecycle (durability), as well as promotion of reparability, upgradability, “retrofitability” and of related “product second- and third-life services”. We see a risk that the regulations under preparation may emerge as too “resource/waste centric”. Indeed, to meet quality and safety expectations, and adhere to stringent electric and electronic equipment standards, recycled materials are sometimes not available in either quantity and/or quality. We actively advocate sector-specific approaches to the circular economy. E Guaranteeing the sustained quality of products through qualified and certified services: while promoting services to extend the product life, we grow the ranks of certified experts on our products (our thousands of Field Services Representatives and our Field Services business partners). Leveraging the circular economy, we believe there is a fantastic opportunity to enable more repair, retrofit, and recycling services, provided concerned product categories are adequately maintained and serviced by qualified and certified experts, thus ensuring the security and safety of people and assets. Since the circular economy concept, though gaining momentum, is still in nascent stages in regard to standards and regulations, to take part to multi-stakeholders’ discussions, we have been involved, from very early stages, in various forums like the Ellen McArthur Foundation, World Economic Forum, Fieec, Gimelec, Capiel, Afep, European Policy Center, Gartner Group, and SCM World, among others. The circular economy enables additional avenues to innovation and to capture untapped growth. While there is a multitude of opportunities to leverage circular initiatives within our Company, they can be grouped and summarized into two main areas: E contribution to create ‘relationships-for-life’ with customers: by far the most strategic pillar of our circular economy strategy, with key characteristics of our offers being serviceable, upgradable,

connected (IoT), longer-lasting, retrofitable, refurbishable and green. New forms of customer relationships also exist, such as leasing, performance contracting, pay-per-use, asset portfolio management, secondary market access and take-back schemes. These initiatives are sources of innovation. E bottom-line improvement through enhanced resource productivity: another opportunity through the circular economy is reduction of our costs through the decrease in our resource intake (eco-design at offer creation process level, optimal industrialization, trained/sensitized suppliers, reuse and recycling of ‘everything’). It will also include a set of significant efforts towards generating revenues from waste resale (metal, plastic, and e-waste monetization, among others). Packaging waste reduction and optimization is also seen as a source for further savings. Group policy We continue to be part of the Circular Economy 100 (CE100) program of the Ellen MacArthur Foundation. This brings together other companies the world over to share innovations, partnerships and best practices in the circularity domain. At Schneider Electric, we run transformation programs which relate and map to the circular economy opportunities in 2 ways: E Customer-Relationship circularity (also referred to as product and value proposition circularity); E Resource circularity. Customer-relationship circularity refers to the continuation of our efforts to build products which last longer (most of our product ranges today offer a lifespan of 10 to 40 years, and which come with a range of services for modernization and upgrades, retrofit, etc., thus prolonging their lifespan). Through digitization, IoT and the connected nature of our offers, we are able to closely monitor product operations and customer needs. Hence, such value propositions come with clear value addition for customers in the form of reduced operating expenditures (Opex), increased continuity of operations, and lower total cost of ownership. By end-2017, we had already introduced into our offer creation process the mandatory criteria for serviceability/reparability and rating at early stage gates for 100% of our new products (as part of our ecoDesign Way program). We continue the design and promotion of product end-of-life services and take-back, and of related reverse logistics. Over the next 3 years, we are committed to avoid consuming 100k metric tons of primary resources through our EcoFit, recycling and take-back programs. For example, Schneider Electric’s EcoFit program was developed to facilitate equipment upgrades by replacing only certain key components, rather than replacing a whole system. In addition to extending the equipment’s useful life at a fraction of the cost of outright replacement, these upgrades also typically boost functionality, add communication capabilities and enable networking, maintaining —or even increasing— its utility for years to come. This typically results

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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